The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives

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CONTENTS

Author’s Note on Sourcing and Methods

Introduction

Chapter One

THERE IS NO CHRISTMAS

Chapter Two

THAT DOG DON’T HUNT

Chapter Three

THE SILVER AGE

Chapter Four

UNITEDLY YOURS

Chapter Five

THE BACKLASH

Chapter Six

PAUL PELLETIER’S WHITE WHALE

Chapter Seven

KPMG DESTROYS CAREERS

Chapter Eight

THE HUNT FOR AIG

Chapter Nine

NO TRUTH AND NO RECONCILIATION

Chapter Ten

THE LAW IN THE CITY OF RESULTS

Chapter Eleven

JED RAKOFF’S RADICALIZATION

Chapter Twelve

THE GOVERNMENT FAILED

Chapter Thirteen

A TOLLBOOTH ON THE BANKSTER TURNPIKE

Chapter Fourteen

THE PROCESS IS POLLUTED

Chapter Fifteen

RAKOFF’S FALL AND RISE

Chapter Sixteen

FIGHT FOR IT

Acknowledgments

About the Author

Notes

Index

For Sarah

AUTHOR’S NOTE ON SOURCING AND METHODS

TO REPORT AND WRITE THIS story, I relied on thousands of pages of court documents, journalistic and academic accounts of events, internal government documents, emails, transcripts, and hundreds of hours of interviews with hundreds of current and former prosecutors, Congressional staffers, and other government officials and regulators, defense attorneys, bankers, investors, corporate executives, academics, lobbyists, consumer advocates, and others.

I spoke with most of the people named in this book. For those who did not speak to me, I contacted them, or attempted to contact them, to allow them to tell their story. Many of the sources I spoke to did not want their names used. Most former prosecutors continue to work in the law and don’t want to threaten their careers by speaking out publicly. I have deliberately not attributed much in the book to protect my sources. Further details on sourcing for specific chapters can be found in the Notes section.

The book’s dialogue comes from documents or the best recollections of participants. Where I could, I tried to contact as many people in a given meeting or scene to confirm what was said. States of mind often come from the speaker, but also from documents or conversations where the speaker contemporaneously relayed to others what was said. The reader should not infer that I spoke to that person.

INTRODUCTION

THE DEPARTMENT OF JUSTICE IS a loose federation of ninety-four offices around the country, each a realm unto itself, run by a US attorney who is almost untouchable by headquarters in faraway Washington, DC. Of all those offices, the Southern District of New York, located at the bottom tip of Manhattan, has the smartest and ablest prosecutors in the land. Any alum of the office will be happy to verify that.

The Southern District’s founding, in 1789, predates that of the Department of Justice itself. The office held its first criminal trial in 1790, which lasted a day. The first US attorney convicted two men of conspiring to destroy a brigantine and murder its captain and a passenger. The second US attorney simultaneously served as mayor of New York City. Today the office specializes in the most complex and difficult criminal cases: corporate white-collar fraud, often securities law violations. Insiders relish its nickname: the sovereign district, for its penchant for claiming jurisdiction over any such case from any corner of the United States, the other ninety-three offices be damned.

Prosecutors in the Southern District have the strongest résumés from the best schools. They should inspire trust when they stand up in court to say, I represent the government of the United States of America. But it takes something even more to get to the Southern District; something more personal. Someone somewhere—a top partner at a law firm, a respected judge or professor—had to send the signal. That sign indicated the candidate wasn’t just special; he or she was a superstar in the making. The Manhattan US Attorney’s Office launched the careers of judges and legal giants of every kind; politicians (New York City mayor Rudolph Giuliani and Representative Charles Rangel); cabinet secretaries (Henry Stimson, the US secretary of war under presidents William Howard Taft, Franklin Delano Roosevelt, and Harry Truman); a US attorney general (Michael Mukasey); FBI directors (Louis Freeh); and two Supreme Court justices (Felix Frankfurter and John M. Harlan II).

In January 2002, early in the George W. Bush presidency, the White House appointed James Comey the fifty-eighth US attorney for the Southern District of Manhattan. Comey was a Southern District alumnus with a record of serious prosecutions. He helped prosecute the Gambino Mafia family in the late 1980s and (after he’d left the Manhattan office for Richmond, Virginia) the 1996 Khobar Towers terrorist bombing in Saudi Arabia.1 The staff, worried that the Bush administration would appoint a political operative, felt relieved. The prosecutors hadn’t wanted to lose his predecessor, Mary Jo White, the first (and only) woman to have been US attorney for the Southern District of New York. She had served for almost nine years. She had been so loyal to her charges and such a stubborn guardian of the office’s prerogatives that the attorneys in the office would have run through the Corinthian columns that held up the Foley Square courthouses for her.

When Comey arrived for his first day in 2002, he received a resounding ovation. Then he did something unusual. Comey took several months to feel out the office where he’d been a prosecutor a few years earlier, meeting new attorneys and learning what kinds of cases they were making.

After Jim Comey had finished his months-long listening tour, he decided to give a speech to the criminal division. He made his debut during a regularly scheduled meeting, held in the evening in what the assistants called the Old Courthouse in lower Manhattan. The staff gathered in a courtroom where trials took place. Assistant prosecutors piled into the spectator benches. These lawyers were the nation’s elite, most of them in their twenties and early thirties. From youth, they had been the highest achievers and hardest workers. They had summered as associates at the most powerful law firms. They had clerked for the finest judges. In the coming years, many of the attendees became star prosecutors and top partners at major law firms. Members of the Southern District at that time included Preet Bharara and David Kelley, both successors to Comey and White as US attorneys for the Southern District; Ben Lawsky, who would become the top New York State financial regulator; Neil Barofsky, the future overseer of the federal bank bailout program in the wake of the 2008 crisis; and Ronnie Abrams and Richard Sullivan, future judges.

Usually held monthly, the meeting had a certain formula. First, supervisors rounded up office news. Then they’d go through the box score, where someone would read off who had a trial, what the trial concerned, and whether the office had won or lost. By tradition, whoever ran the meeting made special note of a prosecutor’s first trial. Regardless of whether the rookie had won or lost, everyone would applaud. Prosecutors say that that inauguration gave them chills. They’d made it.

If there was anything Comey might be better at than Mary Jo White, it was giving a speech. Though her prosecutors worshipped her, White was so tiny, a fire hydrant could obscure her. She could not hold crowds rapt. Comey, by contrast, at six foot eight, towered, and he liked to perform. His delivery carried a humility practiced enough to suggest he knew he was good at it. He had used his talents so often to keep the jury’s attention with jokes, knowing references, and pithy turns of phrase. Now he had to enthrall a courtroom of prosecutors. Overachievers all, the office’s attorneys wanted to impress, to feel the chill, to know they had made it.

Before we read off the box score, I have something to say, Comey said. We have a saying around here: We do the right things for the right reasons in the right ways.

All the assembled prosecutors had heard that exhortation in some variation, from Comey in the hallways or in smaller meetings, and from other chiefs.

Then Comey asked the seated prosecutors a question: Who here has never had an acquittal or a hung jury? Please raise your hand.

The go-getters and résumé builders in the office were ready. This group thought themselves the best trial lawyers in the country. Hands shot up.

Me and my friends have a name for you guys, Comey said, looking around the room. Backs straightened in preparation for praise. Comey looked at his flock with approbation. You are members of what we like to call the Chickenshit Club.

Hands went down faster than they had gone up. Some emitted sheepish laughter.

If it’s a good case and the evidence supports it, you must bring it, Comey told his troops. I know it can get crazy in court. You feel stressed when the judge is pounding on you. When that happens, you can all take a deep breath. I don’t want any of you to make an argument you don’t believe in. I want you to believe that you are doing the right thing. Make the right decisions for the right reasons.

Comey had laid out how prosecutors should approach their jobs. Prosecuting wrongdoers is an awesome responsibility, to be undertaken carefully and judiciously. But prosecutors—unlike other lawyers—are not simply advocates for one side. They are required to bring justice. They need to be righteous, not careerist. They should seek to right the biggest injustices, not go after the easiest targets. Victory in the courtroom should be a secondary concern, meaning that government lawyers should neither seek to win at all costs nor duck a valid case out of fear of losing. Federal prosecutors should not be judged on their trial record, whether they are criticized, or what the political consequences might be of their prosecutions. Comey wanted his prosecutors to be bold, to reach and to aspire to great cases, no matter their difficulty.

Ben Lawsky, a young prosecutor in the office when Comey gave his speech, recalls the inspiration from the meeting many years later. He had been waiting with trepidation for the box score because he had lost his first trial. Comey came to his case: Ben Lawsky. First time out of the box and out of the Chickenshit Club! Everyone applauded. Lawsky swelled with relief and pride.

BOOM, BUST, AND CRACKDOWN

America’s economic history has unfolded in a series of booms followed by busts followed, crucially, by crackdowns. After the stock market crash of 1929, congressional hearings channeled public outrage and resulted in landmark laws regulating Wall Street and creating the Securities and Exchange Commission in 1934. A few years later, the new SEC helped put the head of the mighty New York Stock Exchange (NYSE) in prison. Though inconsistent, the SEC over the intervening decades emerged as one of the most respected government regulatory bodies. The SEC is the country’s most important corporate regulator, overseeing publicly traded companies and the nation’s capital markets. The agency has civil powers, and must team up with various offices of the Department of Justice when a securities law violation turns into a criminal investigation. After the go-go years of the late 1960s, the SEC worked closely with the Southern District to take on top law firms, top accounting firms, and top executives who had helped perpetrate corporate frauds. After the savings and loan scandals of the 1980s, when hundreds of small banks across the country failed due to reckless real estate loans, the Department of Justice prosecuted over a thousand people, including top executives at many of the largest failed banks. After the Michael Milken–run junk bond boom and blow-up of the late 1980s, prosecutors spent years digging up evidence of stock manipulation and insider trading at major investment banks and law firms, prosecuting some of the most powerful Wall Street figures of the era. In the early 2000s, the burst Nasdaq bubble revealed a corporate book-cooking pandemic. Top officers from giants such as Enron, WorldCom, Qwest Communications, Adelphia, and Tyco International ended up in prison. Recklessness and stupidity fuel booms, but usually so do crimes.

By contrast, after the 2008 financial crisis, the government failed. In response to the worst calamity to hit capital markets and the global economy since the Great Depression, the government did not charge any top bankers. The public was furious. The bank bailouts and lack of consequences for bankers radicalized both ends of the political spectrum and gave rise to two of the most potent social movements of our time: the Tea Party and Occupy Wall Street. Anger about the lack of Wall Street accountability seeded disenchantment with Obama. The 2016 insurgency of Vermont senator Bernie Sanders, who challenged front-runner Hillary Clinton almost up to the doors of the Democratic Convention, demonstrated the anger that remained on the left years after the apex of the crisis, undergirding mistrust about Clinton. She had given friendly, fateful, and highly compensated speeches to investment banks. While a Republican president had presided over the crisis and a Democratic one had saved the financial system, Hillary Clinton, Obama, and the Democrats could not claim to be the protectors of the working class and the scourges of investment bankers. That was due, in large measure, to the lack of corporate prosecutions. According to a Wall Street Journal analysis of 156 criminal and civil cases brought by the Justice Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission against ten of the largest Wall Street banks since 2009, in 81 percent of the cases, the government neither charged nor even identified individual employees. In the remainder, the government only charged forty-seven low and midlevel employees. Merely one was a boardroom-level executive, whom the SEC charged civilly.2

In his own incoherent and superficial way, Donald Trump rode anger about Wall Street throughout his campaign, railing at bank power. He closed his campaign by hinting poisonously about a cabal of global bankers rigging the system. He assailed politicians who were owned by Goldman Sachs: first Ted Cruz in the primary and then Hillary Clinton in the general. The Republican platform called for breaking up the big banks by returning to the Glass-Steagall Act, the Depression-era law that split commercial banking from investment banking, a reflection of resentment about the government bailout of the financial system as bankers wriggled free. (No sooner had Trump taken office then he rushed to stuff members of that cabal into his White House and cabinet. He and the Goldman alumni who advised him moved within days of taking office to unravel Dodd-Frank and loosen restrictions on corporations generally.)

It’s commonplace to observe that no top bankers from the top financial firms went to prison for the widespread malfeasance that led to the 2008 financial crisis. It’s such a socially acceptable opinion that no less than an inside-the-Beltway figure than the former chairman of the Federal Reserve, Ben Bernanke, said (after he was safely out of office) that more bankers should have gone to prison. But the problem is worse than that.

Today’s Department of Justice has lost the will and indeed the ability to go after the highest-ranking corporate wrongdoers. The problem did not begin in the aftermath of the 2008 crash—and it has not ended. Prosecutors don’t simply struggle to put executives for Too Big to Fail banks in prison. They also cannot hold accountable wrongdoing executives from a gamut of large corporations: from pharmaceuticals, to technology, to large industrial operations, to retail giants.

James Comey’s exhortation came at the beginning of a dramatic and little-understood shift in how the government prosecutes white-collar corporate crime. After the post-Nasdaq-bubble prosecutions of the early 2000s, the Justice Department began to suffer fiascos, losses in court, damning acts of prosecutorial abuse, and years of intense lobbying and pressure from corporations and the defense bar to ease up. Prosecutors lost potent investigative tools and softened their practices, changes that have made it harder to gather evidence and conduct even the most basic investigations. Compounding this issue, the Justice Department has been hurt by budget constraints. The FBI, which usually conducts investigations for the department, shifted resources to antiterrorism efforts in the wake of 9/11. The Justice Department has kept track of white-collar cases only since the early 1990s. In the four years from 1992 through 1995, white-collar cases averaged 19 percent of overall cases. In the four years from 2012 to 2015, that number had fallen to just under 9.9 percent. The Department of Justice wasn’t just going after fewer cases, but easier cases, contrary to Comey’s admonition. In that same period, the conviction rate was slightly higher: 91 percent in the 2012–15 period, compared with 87 percent in the early 1990s.3

Meanwhile, judges all over the country embarked on newly generous interpretations of the law, broadening corporate and executive rights and privileges, narrowing white-collar criminal statutes, and repeatedly overturning federal prosecutors in notable white-collar cases. The Supreme Court has expanded the rights of corporations in the most potent, visible fashion, but lower courts have contributed to the trend. Over the last decade, while draconian when it came to street criminals, the courts have repeatedly read the US Constitution expansively when the government tried to charge corporations or their top executives. Congress sat by, failing to recognize the problem, much less propose legislative solutions.

To compensate for these changes, the Department of Justice shifted from targeting individual corporate executives with trial and imprisonment. Instead, prosecutors switched to a regime of almost exclusively settling with corporations for money. In these negotiations with corporations, prosecutors discovered they had great leverage.

Since 2001, more than 250 federal prosecutions have involved large corporations. These include some of the biggest names in corporate America: AIG, Google, JPMorgan Chase, and Pfizer among them.4 The majority of these have been negotiated deals, not indictments. From 2002 through the fall of 2016, the Justice Department entered into 419 such settlements, called deferred prosecutions and nonprosecution agreements, with corporations. There had been just 18 in the preceding ten years.5 Meanwhile, corporate prosecutions fell. The Justice Department prosecuted 237 companies in 2014, 29 percent below the number in 2004.6 These prosecutions tended to be of tiny, inconsequential companies.

Large and powerful corporations, under the advice of their expensive defense lawyers, were eager to appear cooperative and wrap up investigations quickly, before prosecutors uncovered more damning information. They could pay settlements with other people’s money: that of their shareholders. Since the early 2000s, changes in the business of law accelerated. Big Law corporatized white-collar criminal defense, working more often in symbiosis with prosecutors than as adversaries. These lawyers, not the government, conducted extensive and lucrative investigations, delivering their findings to the government and moving on to the next. Prosecutors, for their part, could generate headlines with eye-popping dollar amounts and set themselves up for lucrative careers in the private sector. And they hadn’t had to go to court to prove their case. The bigger the penalties, the more headlines they grabbed, and the more appealing they became to the prosecutors who could name their price.

These settlements did little to deter corporations from breaking the law. Over 50 percent of the most serious fraud and larceny culprits were recidivists, writes University of Virginia law professor Brandon Garrett, a rate about the same as robbery and firearms offenders and far higher than drug traffickers. Five years before the BP Deepwater Horizon explosion in 2010, the British oil and gas company had the Texas City refinery disaster.7 ExxonMobil has been convicted four times since 2001 of environmental crimes. In recent years, Pfizer, the pharmaceutical behemoth, has suffered every form of government crackdown that prosecutors can imagine, short of the ultimate sanction of being put out of business. Pfizer and subsidiaries have had two convictions, two deferred prosecution agreements, and a nonprosecution agreement.

Corporate settlements were easier to reach than indictments of individuals, particularly top executives. The Justice Department shifted away from white-collar prosecutions. In 2016 the Department of Justice brought the lowest number of white-collar cases against individuals in twenty years, on track for just 6,200 cases, down more than 40 percent from 1996—despite population and economic growth.8 Though companies pledged cooperation with follow-on investigations of individuals, usually no one from a company that signed a deferred prosecution went to prison. In two-thirds of cases involving deferred prosecutions or nonprosecutions of public corporations between 2001 and 2012, according to Garrett, the company was punished, but no employees were prosecuted.

Of the thirty-one publicly listed firms convicted in the same period (thus not including those who reached a settlement), Garrett counted the leaders of those companies who went to prison: four CEOs, one chairman, one president, and one CFO.

Investigations and prosecutions of people are much more difficult than going after corporations. Prosecutors began to see probes of single human beings, one by one by one, as a slog; nasty trench warfare that carries a risk of humiliation if they lose. Investigations of individuals consume more time. Investigators must work slowly, first going after lower-level employees and then flipping them against their bosses. To their bosses at the Department of Justice, prosecutors who pursue individuals appear less productive. Investigating top executives at large corporations is more difficult because they insulate themselves from day-to-day decision making. Prosecutors find it harder to accumulate the evidence necessary to prove their cases beyond a reasonable doubt. And individuals have greater incentive to fight prosecutors.

Defaulting to a settlement with a corporation without prosecuting individuals corrodes the rule of law. Settlement culture validates the critiques of both sides. Companies argue that the government has extorted them into forking over money for unproven crimes. They say they cannot contest allegations because regulators hold the power of life or death over them. The public, meanwhile, sees corporations writing checks to make charges disappear.

Settlements have another downside: they weaken prosecutorial skills. Over time, prosecutorial aversion turns into lost knowledge. Settlement culture breeds investigative laziness and erodes trial skills.

Corporate power is at a zenith in America, and business has privileges not seen since the Gilded Age. Executives make more money than ever. Corporate profits are at record highs. The courts are expanding corporate rights, as companies exert great political power and dominate our policy discourse. But the most valuable perquisite corporate officers possess is the ability to commit crimes with impunity. Such injustice threatens American democracy.

Today the justice system is broken. Over the decade after Jim Comey’s speech, his words failed. The Justice Department succumbed. The department avoided the biggest cases. It became fearful of losing and lost sight of its fundamental mission to make this country a just place. James Comey would have no way of knowing it at the time, but his sermon to the Southern District prosecutors could have easily been a eulogy for the courage he hoped to muster. The Chickenshit Club’s ranks in the years ahead would only grow.

Chapter One

THERE IS NO CHRISTMAS

ON A GRIM DAY IN september 2003, with hurricane Isabel brewing off the East Coast, federal prosecutor Kathy Ruemmler prepared for the government’s third interview with an Enron witness. The investigation into the top officers at the collapsed energy giant was stalled. Ruemmler knew the prosecutors had to flip someone.

She had just joined as the youngest member of the Enron Task Force, the special SWAT team the Justice Department had assembled to dig into what had been one of the richest and most admired companies in the world. Now it had been revealed to be one of the biggest frauds in American business history. At a passing glance, the thirty-two-year-old assistant US attorney looked fresh faced and friendly, with her shoulder-length blond hair and clothing that was a step up from the typical government servant’s. But she had a steeliness that she could wield at will. Her warm blue eyes hardened when she was deposing a witness.

Her teammate in those days was Sam Buell. Before joining the task force, Buell, thirty-nine, had prosecuted Boston mob cases. He was tall and clean cut. His short, reddish hair framed a wide, gentle face that sat above broad shoulders. Buell, the son of schoolteachers, had grown up in Milton, Massachusetts, outside of Boston. Self-deprecating and easygoing, he looked like a favorite high school math teacher. Witnesses liked him in spite of themselves. Buell and the task force had been laboring over the case for months now. They were going after Jeff Skilling and Ken Lay, Enron’s top officers. Ruemmler and Buell spent most of their time shuttling from DC to Houston, where the two of them would drive from their dingy government-rate hotel rooms to an abandoned space at the top of Houston’s run-down federal courthouse, a 1960s-era squat white cube in the middle of downtown Houston.

They passed through building security unencumbered. Here it was already 2003, and they still didn’t even have BlackBerrys. Upstairs, their clunky computers balanced on cardboard boxes atop chipped metal desks. The whole place was so run-down that it was fodder for jokes. A defense attorney bringing a tony client for an interview once cracked, It looks like an OSHA violation in here! During the first winter, most of them had come down with miserable respiratory infections. Were the offices infecting them? Or was it just the pressure of their task? They had no document management system and no way even to email the FBI agents assigned to the investigation, who were just a few blocks away. With this pathetic setup, they were taking on an infernally complex company in the most important corporate fraud case in memory, against a legion of defense lawyers from the best firms in the world.

The country had invaded Iraq six months earlier. Madonna kissed Britney Spears and Christina Aguilera on the MTV Video Music Awards show. The American tennis star Andy Roddick won what would be the only major tournament of his career: the US Open championship. But Ruemmler barely noted outside events, significant or trivial. She had no time for anything but the case. During these eighteen-hour days, when she could only sneak in a frozen pizza and a shower, Ruemmler would sometimes marvel that she had ended up here. She had grown up in Richland, Washington, a rural corner of the Northwest, where both of her parents worked at the giant Hanford nuclear facility on the Columbia River, her father as a computer engineer and her mother in a toxicology lab. Unlike most of her Justice Department colleagues, Ruemmler hadn’t gone to an elite eastern college. She’d been thrilled to get into the local University of Washington, and before she left to attend Georgetown University Law Center, she had been out of the Northwest only three times.

Yet Ruemmler had landed a plum job: assistant US attorney; a federal prosecutor in the DC office. She’d been handling violent crime and narcotics cases when Leslie Caldwell, head of the Enron Task Force, reached out. Ruemmler hadn’t had much experience prosecuting financial fraud. She’d been reading the papers and coming across the same phrase: if normal financial fraud was algebra, the articles intoned, Enron was advanced calculus. She felt intimidated. But Caldwell assured her the Enron Task Force would be only a six-month detail.

•  •  •

Twice, the Enron prosecutors had brought in one of their most promising witnesses, Dave Delainey, the head of Enron’s energy trading division. He’d stuck with his story, brushing aside questions from the prosecutors and the FBI agent assigned to this part of the investigation. They weren’t giving up, though, and that morning they felt certain they had discovered a dangling thread that might help them unravel his story.

As Ruemmler and Buell went through the many emails Delainey had sent to his head trader, they found a huge gain the company had made trading in California’s energy markets in the late 1990s. Enron didn’t want to tell shareholders it was a volatile trading shop. Instead, the company line for Wall Street had been that Enron was a stable, fast-growing operation. CEO Jeff Skilling had downplayed Enron’s trading, once saying on CNBC that it was just a small portion of its business.1 Enron was just a logistics business, he’d say, meaning that Enron helped speculators but wasn’t one itself. A big trading gain, such as the one Ruemmler and Buell discovered, hinted at the reality. Speculation dominated the company’s culture and contributed an outsized portion of its profits. Once, after a trader had lost close to a half billion in one day, Skilling came down to the trading floor and exhorted the traders to man up. Get back out there and make more trades. Win it back.

Instead of having Enron disclose those trading profits, Delainey and his executives hid them. They stashed the millions of dollars of earnings and created a cover story: it was setting aside those profits for a possible legal settlement.

Ruemmler and Buell had figured out that this reserve, this cookie jar, was a lie. Poring over the company’s intentionally complicated and messy financial statements one more time, they’d noticed that a year after creating the reserve, Enron had lost millions in another division and dipped into that money—reserved for legal costs—to cover the losses and make it look like it had made money that quarter. That accounting hocus-pocus was illegal, and Delainey and his top trader had emailed about it. But they’d used a lot of trader jargon, and the emails were vague enough that a jury would need them decoded. The prosecutors understood how the scam had been pulled off but believed they couldn’t prove it yet.

Delainey could explain that little scam, but that’s not why they needed to flip him. Complex white-collar investigations required finding rabbis to guide you through the transactions. Even the smartest outsiders couldn’t rely on the documents. They were conducting an old-fashioned investigation. They needed someone on the inside. If they could flip Delainey, they could take the prosecution all the way to the top. They could begin to build a case that Jeff Skilling had lied to investors and the public.

ALL BULLSHIT

That led them, in the middle of the hurricane, to haul Dave Delainey and his expensive lawyers into a windowless conference room in the Bond Building in Washington, DC, for a third time.

Buell and Ruemmler and their expert FBI agent had new verve; they took command of the interview from the start. Buell had a hunch Delainey wanted to cooperate. Getting him over to their side, however, required breaking down his instinct to deny and minimize his culpability. Delainey had long been an Enron true believer. A clean-cut Canadian, he’d been awed by the testosterone-flooded Enron trading culture. Hard-charging, sure, but they weren’t—couldn’t be—criminals.

Few corporate white-collar fraudsters—not egregious Ponzi schemers or boiler room operators but perpetrators at large, respectable companies—start out thinking they will commit a crime. As one academic study, Why Do They Do It?: The Motives, Mores, and Character of White Collar Criminals put it, most white-collar criminals are individuals who find themselves involved in schemes that are initially small in scale, but over which they quickly lose control.2

They tell themselves, I’ll just do it this quarter so we don’t miss the number, and then I’ll stop it and undo what I’ve done. They don’t think of themselves as crooks. It’s just a short-term fix. Then they use the device again and again until they have no choice but to keep up the charade. They start rationalizing what they’re doing. It may be aggressive, but it’s not wrong. It’s not theft. The bad guys aren’t lying just to prosecutors. They are lying to their shareholders, their colleagues, and their families. And they are lying to themselves.

The prosecutor’s job is to crack through that self-justification and self-delusion. That’s what Ruemmler and Buell were going to do that morning, in that room, with Delainey.

The two stuck with their plan to stay calm, to both be the good cops, and keep asking questions about the emails. They would reason with him, confronting him with the evidence, though selectively, to test his credibility. Their advantage was that Delainey didn’t know exactly which documents interested the prosecutors, as well as who else from Enron was talking and what they were saying. As Ruemmler and Buell ground him down on the emails, his story began to collapse. A couple hours into the conversation, it happened: Delainey glanced over and signaled a silent plea for help to his lawyers: John Dowd of Akin Gump and a promising young associate named Savannah Guthrie, who would later coanchor the Today show.

Dowd was a legend, one of the premier defense lawyers in the country. Big and aggressive, he’d vow to fight the government from every rampart in Washington. He had some quirks. Using just two fingers, he’d bang out his emails in twenty-eight-point purple Comic Sans font. Who He? he’d email-bellow to his associates. He toned it down for Buell, who saw a familiar character in Dowd, a brash and street-smart working-class Bostonian. They would chat about the Red Sox. Dowd was no intellectual, but he was savvy and knew how to help his clients. Buell and Ruemmler made it clear where the email evidence was taking Dowd’s client. The attorney understood it perfectly.

Dowd asked if he and Guthrie could confer with their client and then left the room.

They were gone for about fifteen minutes. When they came back in, Ruemmler noticed that Delainey’s demeanor had changed. He now slumped in his chair. A moment passed in silence. He then spoke—mumbled, really: It was all bullshit.

As Kathy Ruemmler snuck a quick a look at her partner, she saw the smallest of smiles on his face.

GEORGE BUSH AND KENNY BOY

When Enron filed for bankruptcy in December 2001, the implosion devastated a major US city, Houston, both economically and psychologically. Fortune magazine had named Enron America’s most innovative company six years straight for having changed the way that gas and electricity moved around the country. The magazine CEO had named Enron’s board one of the top five in America.3 Former secretaries of state Henry Kissinger and James Baker had lobbied for the company. Nelson Mandela had come to Houston to receive the Enron Prize for Distinguished Public Service.

The Enron scandal reached all the way to the president and vice president of the United States. George W. Bush and Dick Cheney had run in the same business and social circles as the Enron executives. Bush’s family had made its money in Texas energy; Cheney, only a few years earlier, had been the CEO of the energy services giant the Halliburton Company, then based in Dallas. Ken Lay, Enron’s founder, was a longtime Bush family friend and major Republican donor. Bush, as is his way with intimates, had given Lay a nickname: Kenny Boy. Lay had once hosted a fund-raiser for Senator John Ashcroft, a Republican from Missouri, who was expected to make a bid for the 2000 presidency. Now Ashcroft was Bush’s attorney general, the top law enforcement officer in the United States.4

The country fell into recession in late 2000. It was reeling from the bursting of the biggest stock market bubble the world had seen, which had inflated through most of the 1990s before collapsing mercilessly in March 2000. Over the next few years, new companies reported accounting problems with alarming regularity: Tyco, Adelphia, HealthSouth, WorldCom. But Enron’s collapse was the most spectacular. The pandemic of corporate greed and criminality felt so consequential that it wasn’t outlandish to think that Enron’s failure might be the seminal financial event of a generation.

Enron’s significance would recede, however, and the lessons it holds for white-collar enforcement would be forgotten. Despite Enron’s political might, the US government aggressively investigated the fraud at the energy trading company and prosecuted dozens of individuals, including the top officers of the company. Lay, Skilling, and Andrew Fastow, the chief financial officer, were all found guilty. Skilling and Fastow went to prison; Lay would have gone, too, but he died of a massive heart attack in 2006, just three months before his sentencing. In all, the government charged thirty-two people associated with the Enron frauds, including Wall Street bankers who’d facilitated the deceptions.5 The government did indeed take down rogue executives not that long ago.

Many people look at the crimes at Enron, WorldCom, Adelphia, Tyco, and the generation of post-stock-market-bubble-bursting prosecutions and think the crimes were so egregious that the prosecutions must have been easy. But that’s only with the benefit of hindsight. What Kathy Ruemmler, Sam Buell, and the rest of the Enron Task Force did was not simple and never inevitable. If the task force hadn’t had resources, time, intelligence, and patience, Lay and Skilling may not have been prosecuted at all or could have easily been acquitted. The prosecutorial team went up against the best defense lawyers in the country. The public brayed for faster action. The team had its share of stumbles, blowing some of its trials. Lay didn’t use email; Skilling rarely did. So the government lacked direct, incriminatory evidence of their guilt. But in the big cases, the task force prevailed. These were not accidents. The Enron prosecution team made smart strategic decisions, secured necessary resources, learned from their mistakes, used aggressive tactics, and ran the major trials well.

Despite this success, the Justice Department took the wrong lesson from Enron. Over the next decade, the task force’s legacy, at least for the subsequent leaders of the Justice Department, lay more in its mistakes than its successes. Courts reversed the government in key cases. The defense bar and Justice Department officials came to view the Enron prosecutors as reckless and abusive rather than sufficiently aggressive to meet the prosecutorial challenge. Today it’s an open question whether the Justice Department would be capable of taking on Enron the same way the task force did.

ASSEMBLING THE TEAM

In the early years of the George W. Bush administration,